Advertisement
Budgeting

The Power of Living Within Your Means

Budgeting is work, but it allows you to spend your money on what you value most.

Creating a budget is crucial at any age, but it's especially important—and daunting—for us millennials. When rent, health care, cell phone bills and other costs previously borne by Mom and Dad gobble up our paychecks, figuring out how to handle the rest of our cash is hard. And for me, at least, travel, socializing with friends and spending on everyday needs can be tough to balance against saving for a far-off future.

But now is the best time to learn how to budget. "We're at this critical point where if we don't understand where our money goes, we will feel less and less in control of our finances as the years go on," says Pam Capalad, a certified financial planner (and millennial) who owns Brunch & Budget, in New York City. Learning to live within your means will help you prepare for the inevitable stressors later on, such as buying a home, starting a family or taking time off between jobs.

Advertisement - Article continues below

Budgeting well can take some trial and error. When I moved to Washington, D.C., in 2012, I dutifully recorded every dollar I spent on a spreadsheet. But I eventually got lazy and stopped adding up my expenses each month. When I revisited my budget last year to see if I could afford to leave roommate life behind and live alone, I was shocked. My fixed expenses had mostly stayed the same, but my discretionary spending had ballooned as I grew lax about throwing money at nights out with friends. At the same time, I was accumulating too much cash in my checking account that could have been put to better use in a savings account or in my 401(k).

Advertisement
Advertisement - Article continues below

I assumed that tracking expenses was enough. But "it's not budgeting if you don't check back in and ask yourself, 'Do I want my money going into those categories?' " says Rebecca Conner, a CFP and founder of SeedSafe Financial, in Seattle.

Advertisement - Article continues below

Strategies that stick. Start budgeting by tracking your expenses for two to three months—without judgment—says Ryan Frailich, founder of Deliberate Finances, in New Orleans. Once you're aware of where your money goes, you can set realistic, concrete goals ("save $700 in my vacation fund by August") rather than vague ones ("go out less"). This will motivate you to revisit your budget regularly.

Start gradually, rather than trying to overhaul your money habits all at once. Capalad recommends that her clients choose one category at a time and spend a couple of months paring down their spending in that area. At the same time, think about what you value most—living alone, getting in shape with a personal trainer, going to concerts or the theater—and prioritize those in your budget.

A free budgeting app or website, such as Mint or investor-focused Personal Capital, may help. Another tool, You Need a Budget, encourages users to assign each dollar earned a "job" so all income is allocated to expenses or savings. The service costs $84 a year, but some users think the results, breaking the paycheck-to-paycheck cycle, outweigh the fee. Setting up these tools can be tedious, but they will help you visualize your net worth, spending patterns or goals. A tool that works for your friends might not work for you. I found Mint overwhelming and rarely logged in.

Try redirecting a bigger chunk of your income into a savings account when you get your paycheck (and before you have a chance to spend it). See how crunched you feel the first month before upping that amount. Similarly, if you currently contribute 3% of your paycheck to your 401(k), inch up slowly toward the ideal 15%.

Owning up to what you spend (or overspend) is scary. "Freaking out is part of the process," says Capalad. I felt disheartened when I realized that something had to give. But the important thing is spending my money on what I value most, and that's my choice. The rest is negotiable.

To share this column, please go to kiplinger.com/links/millennials.

Advertisement
Advertisement

Most Popular

7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020
Retired? Good Luck Getting a Mortgage, Even If You’re Wealthy
mortgages

Retired? Good Luck Getting a Mortgage, Even If You’re Wealthy

One 70-year-old’s story highlights the challenges. Prepare for more paperwork and hoops to jump through than you could imagine.
August 2, 2020

Recommended

6 Money-Smart Ways to Spend Your Stimulus Check
Tax Breaks

6 Money-Smart Ways to Spend Your Stimulus Check

If you don't have to use your stimulus check for basic necessities, consider putting the money to work for you. You'll thank yourself later.
July 30, 2020
8 Money-Smart Ways to Spend Your Tax Refund
Tax Breaks

8 Money-Smart Ways to Spend Your Tax Refund

Since this year's tax deadline was pushed back to July 15, many people just recently filed their tax return. That means there are a lot of tax refunds…
July 17, 2020
Know Why Your Credit Score Changes: 9 Money Moves to Consider
credit & debt

Know Why Your Credit Score Changes: 9 Money Moves to Consider

Your credit score is a key indicator of your financial well-being and of the risk you pose to lenders. How good is yours?
July 10, 2020
Banks Canceling Credit Cards, Cutting Limits
credit & debt

Banks Canceling Credit Cards, Cutting Limits

If you haven’t used a card in awhile, make a small purchase with it to keep it open. It’s good for your credit score.
June 4, 2020